Hudbay Minerals Inc. Q2 FY2024 Earnings Call

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Hudbay Minerals, Inc. Second Quarter 2024 Results Conference Call. At this time, all participants are in listen-only mode. I would like to remind everyone that the conference call is being recorded today, August 13, 2024 at 11:00 AM Eastern Time. I will now turn the conference over to Candace Brule, Vice President, Investor Relations. Please, go ahead.

Thank you, operator. Good morning and welcome to Hudbay's 2024 second quarter results conference call. Hudbay's financial results were issued this morning and are available on our website at www.hudbay.com. A corresponding PowerPoint presentation is available in the Investor section of our website, and we encourage you to refer to it during this call. Our presenter today is Peter Kukielski, Hudbay's President and Chief Executive Officer. Accompanying Peter for the Q&A portion of the call will be Eugene Lei, our Chief Financial Officer; and Andre Lauzon, our Chief Operating Officer. Please note that comments made on today's call may contain forward-looking information, and this information by its nature is subject to risks and uncertainties, and as such, actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult the company's relevant filings on SEDAR+ and EDGAR. These documents are also available on our website. As a reminder, all amounts discussed on today's call are in U.S. dollars unless otherwise noted. And now I'll pass the call over to Peter Kukielski.

Thank you, Candace. Good morning, everyone, and thank you for joining us. In the second quarter, our operations continued to execute on plan, which has positioned us well to achieve our 2024 annual production guidance. The operations also demonstrated strong cost control, which together with our exposure to higher gold byproduct credits has allowed us to improve our 2024 consolidated cash cost guidance. Our strong and diversified operating base continues to generate free cash flow from efficient performance in Peru and Manitoba. And in British Columbia, we continue to execute on our stabilization initiatives and plan stripping program to unlock higher copper grades. We have transformed our balance sheet and are now in the best position we have ever been in to advance our many growth initiatives, which will unlock significant upside potential in our pipeline and further enhance our copper and gold exposure. We will go into more detail on our second quarter operating and financial performance throughout today's presentation, along with providing an update on many of the exciting growth initiatives underway. Slide 3 summarizes the financial performance in the second quarter. We achieved consolidated copper production of 29,000 tons and consolidated gold production of 59,000 ounces in the quarter. This was in line with our quarterly production cadence expectations for 2024 as we executed the planned stripping programs in both Peru and British Columbia this quarter. We are well-positioned to achieve stronger production in the second half of 2024 in accordance with the mine production profile and have reaffirmed 2024 consolidated production guidance for all metals. As we are now halfway through the year, we can give a bit more color on where we expect to be within the ranges. Consolidated copper production is likely to be below the midpoint of the guidance range, while consolidated gold production is expected to be above the midpoint of the guidance range. This is primarily a result of lower-than-expected grades and timing impacts from heavy rains in Peru earlier this year, as well as the transition period at Copper Mountain as we execute the stabilization plans. Manitoba's robust operating performance, primarily driven by continued outperformance at the New Britannia Mill and higher-than-expected grades, has led us to expect stronger gold production for 2024. Consolidated cash costs were $1.14 per pound of copper in the second quarter. This continued strong cost performance has allowed us to improve our 2024 consolidated cash cost guidance to a range of $0.90 to $1.10 per pound, compared to our previous guidance range of $1.05 to $1.25 per pound. The improved guidance reflects the stronger outlook expected in the second half of 2024 and the benefits of complementary gold exposure. We have reaffirmed all other 2024 guidance metrics. Operating cash flow before change in non-cash working capital of $122 million was lower than the first quarter as a result of the planned lower production levels, partially offset by higher realized metal prices and continued strong cost performance. This quarter was also impacted by copper sales volumes in Peru and zinc sales volumes in Manitoba due to timing of shipments. We also saw elevated taxes from mining taxes that are calculated based on taxable mining profits in each jurisdiction. Cash flows benefited from effective working capital management, which resulted in cash generated from operating activities of $139 million, remaining unchanged from the first quarter. Adjusted EBITDA of $145 million in the quarter was lower than the first quarter due to the same reasons affecting operating cash flow. However, trailing 12-month adjusted EBITDA was $824 million, a substantial increase from $407 million a year ago. Adjusted earnings per share attributable to owners was nil in the second quarter. After deducting sustaining capital expenditures and cash lease and community payments, we generated approximately $30 million in free cash flow this quarter. This continues our quarterly trend of generating positive free cash flow, and over the last 12 months, we have generated nearly $400 million in free cash flow. Turning to Slide 4, our strong free cash flow generation combined with the proceeds of the successful equity offering we completed in May, have enabled us to further improve our balance sheet. During the quarter, we took several prudent measures to further progress against our deleveraging targets by paying down more than $150 million in debt and gold prepay liabilities. The oversubscribed and upsized $400 million equity offering added $386 million of net proceeds to our cash balance, in addition to broadening our investor base and bringing many cross-border long-term investors to our shareholder register. We used some of these funds to repay the full outstanding balance of $90 million on our senior secured credit facilities. We also repurchased and retired $34 million of the senior unsecured notes during the quarter. And we completed an additional 3 months of gold deliveries under the gold prepay agreement, reducing the liability by $24 million and progressing us towards fully repaying the gold prepay facility by the end of August. As a result of continued cash flow generation and these deleveraging efforts, we have reduced net debt by more than $550 million over the past 12 months, and as of June 30, our net debt is $632 million. This brings our net debt to adjusted EBITDA ratio to 0.8x compared to 1.6x at the end of 2023 and 2.9x a year ago. The improved balance sheet flexibility and accelerated debt reduction significantly advances our progress as part of our 3-P plan for sanctioning Copper World and results in successfully achieving the targeted 1.2x net leverage ratio well ahead of schedule. Subsequent to the quarter, deleveraging efforts continued in July and August with an additional $48 million of open market purchases of our senior unsecured notes at a discount. Moving to Slide 5. Our Peru operations produced 19,000 tons of copper, 11,000 ounces of gold, 450,000 ounces of silver, and approximately 400 tons of molybdenum in the quarter. We continue to be on track to achieve our 2024 production guidance for all metals in Peru. Total ore mined in the second quarter increased by 38% compared to the prior quarter and was in line with the mine plan. As part of the mine plan to unlock the next mining phase in the Pampacancha pit, the team is well advanced in executing the stripping program that will continue until September. It is intended to unlock higher copper and gold grades at the Peru operations in the fourth quarter of 2024. The Constancia mill continues to perform well, averaging throughput of 87,000 tons per day in the first half of the year. Ore milled in the second quarter was slightly lower than the prior quarter due to the semi-annual mill maintenance shutdown. Ore milled included supplemental ore feed from stockpiles during the quarter as the team advances pit stripping activities. Milled copper and gold grades decreased in the second quarter due to lower amounts of high-grade ore from Pampacancha, in addition to lower grades from processing stockpiled ore. Recoveries continued to be in line with our metallurgical models. Peru's cash costs were $1.78, up from the exceptionally low first quarter, primarily due to the lower planned production, planned mill maintenance, and by-product credits. Full-year cash costs are expected to be within the 2024 guidance range, reflecting a stronger production profile in the second half of the year. During the quarter, the Peruvian Ministry of Energy and Mines approved a regulatory change to allow mining companies in Peru to increase throughput by up to 10% above permitted levels. Based on this flexibility, we are evaluating the potential for increasing future production at Constancia as early as 2026, which could partially offset the grade declines after the completion of mining at Pampacancha in late 2025. Our exploration activities surrounding the Maria Reyna and Caballito properties near Constancia continue to focus on permitting and drill preparation. As part of the drill permitting process, Environmental Impact Assessment Applications, or EIAs were submitted for the Maria Reyna property in November 2023 and for the Caballito property in April 2024. The EIA for Maria Reyna was approved by the government in June 2024, and the Caballito application continues to make progress through the permitting process. This represents one of several steps in the drill permitting process, which is expected to take approximately 12 months to complete after the EIAs are approved. Moving on to our Manitoba business, as summarized on Slide 6, we saw another quarter of strong operating performance. The Snow Lake operations maintained steady production results while overcoming some challenges in the quarter, including forest fires and temporary production interruptions at the Lalor mine. The Manitoba team's resilience and dedication ensured that the operations continued to function effectively and efficiently while achieving our quarterly production targets. Second quarter production included 43,000 ounces of gold, 2,600 tons of copper, 8,000 tons of zinc, and 210,000 ounces of silver. As anticipated, quarterly production decreased compared to the exceptional results achieved in the first quarter, primarily due to a planned lower-grade mining sequence in the quarter. We remain well on track to achieve our 2024 production guidance for all metals in Manitoba. Total ore mined in the second quarter was 5% lower than the first quarter, reflecting issues with the production hoist gearbox and electrical faults on the hoist drives which caused the 10-day stoppage in hoisting ore. The hoisting downtime was offset by value-added activities including underground ore buildup close to the shaft, waste filling, increased maintenance, building long-haul inventory, and trucking ore to surface. Additionally, the team implemented stope design modifications that yielded positive results by improving mucking efficiency throughout the lifecycle of the stopes. The New Britannia mill has been consistently exceeding performance expectations, achieving 1,650 tons per day in 2023, more than 1,850 tons per day in the first half of 2024, and a new monthly record of nearly 2,100 tons per day in June 2024. The ongoing efforts to increase throughput are aligned with our strategy to maximize gold production by directing more gold ore from Lalor to the New Britannia Mill for higher recoveries. Recoveries of gold and copper were 90% and 94%, respectively in the second quarter. The final payment under the gold prepay facility that financed the refurbishment of New Britannia is in August 2024, which will allow us to further enhance our exposure to higher gold production in Snow Lake. With approximately 2 million ounces of contained gold in current mineral reserve estimates and another 1.4 million ounces of contained gold in inferred resources, the New Britannia investment has unlocked significant value in Snow Lake. This could be further enhanced by regional exploration upside and the current strong gold price environment. In the first quarter of 2024, we received a permit to increase the production rate at New Britannia to 2,500 tons per day, which will provide the opportunity to process more Lalor ore at the New Britannia mill and create additional processing capacity for potential new regional discoveries in Snow Lake. And to close off the Manitoba slide, gold cash costs were $771 per ounce in the second quarter, and full year gold cash costs are expected to remain within the 2024 guidance range. In British Columbia, we continue to focus on advancing our operational stabilization plans at our copper mountain mine. As seen on Slide 7, BC produced 6,700 tons of copper, 4,500 ounces of gold, and 77,000 ounces of silver. Copper production was slightly lower than the first quarter, primarily a result of lower head grades from the processing of stockpiled ore to feed the mill, while mining activities are focused on executing the planned stripping program. Gold production was consistent with the first quarter. We have reaffirmed our 2024 production guidance ranges for all metals in British Columbia. The mill processed a total of 3.2 million tons of ore during the quarter, with mill availability averaging 94% while maintaining a stable throughput rate. Copper recoveries in the quarter were 82.3%, consistent with the strong levels achieved in the first quarter despite lower grades, as the operations improved the regrind circuit constraint and implemented the flotation operational strategy improvements. Cash costs were $2.67 per pound of copper, 23% lower than the prior quarter, primarily due to lower mining costs as the prior quarter had high ore rehandling costs. We anticipate costs to continue to decrease over time as we continue to implement our stabilization and optimization initiatives. Full year cash costs are expected to be within the guidance range. Slide 8 highlights the improvements we have seen at Copper Mountain through the continuation of our stabilization efforts since acquisition. The key elements of our stabilization plans include executing a campaign of accelerated stripping to access higher grades and implementing several plant improvement initiatives to increase mill throughput and recoveries. Year-to-date performance has achieved the highest mill availability and highest copper recoveries in the last decade. As a result, we are on track to realize the 3-year annual operating efficiencies target of $20 million, and we already achieved and exceeded the targeted $10 million in annualized corporate synergies earlier this year. Hudbay's 3-year accelerated stripping campaign commenced in early 2024 to mitigate the substantially reduced stripping that occurred over the 4 years prior to our acquisition. Total material moved continued to ramp up in the quarter as a result of effective usage of the mining fleet as part of the fleet production ramp-up plan. We have successfully remobilized all 28 haul trucks and added 5 additional haul trucks this year to execute the accelerated stripping campaign at a lower cost than the contractor mining costs assumed in the technical report. We have also deployed an additional shovel and drill. With these in place, total material moved is expected to continue to increase quarter-over-quarter as per the mine plan, which will further enhance operating efficiencies and lower unit operating costs. Additionally, we are implementing plant improvement initiatives that mirror the successful processes at our other operations, specifically Constancia. Initiatives that began earlier in the year are progressing on target, including reprogramming the mill expert system, installation of advanced semi-autogenous grinding control instrumentation, redesign of the SAG liner package, and updated operational procedures intended to remove magnetite from the pebble stream. The mill throughput performance has been limited by reduced reliability of the secondary crushing circuit, reaching average daily mill throughput of 35,500 tons per day in the second quarter. During the quarter, several initiatives were advanced to address these issues and other identified constraints and improve throughput to targeted levels. The benefits of the operational stabilization improvements are expected to continue to be realized throughout 2024 and result in stronger performance at Copper Mountain in the second half of the year. We are also accelerating engineering studies to debottleneck and increase the nominal plant capacity to 50,000 tons per day earlier than was originally contemplated in the technical report. Turning to Slide 9, Copper World is the next greenfield copper development project in our growth pipeline, offering significant copper exposure and highly attractive project economics. Copper World is one of the highest grade open pit copper projects in the Americas, with proven and probable reserves of 385 million tons at 0.54% copper in Phase I. There is roughly 60% of total contained copper remaining in the measured and indicated resources excluding reserves, which provides significant upside potential for Phase II expansion and mine life extension beyond the initial 20 years. The Phase I Prefeasibility study released in September of 2023 demonstrated enhanced project economics, an optimized flow sheet, and a simplified permitting process with an extended mine life to 20 years. The project generates an NPV of $1.1 billion and an after-tax internal rate of return of 19% at a copper price of $3.75 per pound. As we progress towards making a sanctioning decision, we will continue to be prudent with our financing plans for Copper World by remaining focused on meeting all of the prerequisites outlined in our 3-P plan that we released in late 2022 as summarized on Slide 10. The first key state permit required for Copper World, the Mined Land Reclamation Plan, was initially approved by the Arizona State Mine Inspector in October 2021 and was subsequently amended and approved to reflect a larger private land project footprint in June 2022. In late 2022, we submitted the applications for an Aquifer Protection Permit and an Air Quality Permit to the Arizona Department of Environmental Quality. The public comment period for the Aquifer Protection Permit was completed in the second quarter of 2024, while the public comment period for the Air Quality Permit commenced in July. Hudbay continues to expect to receive these two outstanding state permits in the second half of 2024. We anticipate launching the formal joint venture process after we secure our permits. We continue to see strong initial interest from potential joint venture partners as many industry participants are focused on increasing copper exposure. As securing copper supply becomes a growing global concern, Copper World will be a key contributor to the domestic U.S. supply chain with our intention to produce Made in America copper cathode. Slide 11 highlights some of the recent exploration results in Manitoba. In 2024, we embarked on the largest annual Snow Lake exploration program in the company's history in the region, with the goal of extending known mineralization near the Lalor deposit to further extend mine life as well as to find a new anchor deposit within tracking distance of the Snow Lake processing infrastructure. The winter portion of the program included the largest ground electromagnetic survey in Hudbay's history. Last year, we acquired an expanded land package, including the Cook Lake claims and Rockcliff properties, and most of the newly acquired claims had been untested by modern deep geophysics. During the second quarter, we completed a surface EM survey covering 25 square kilometers in the Cook Lake area to the north of Lalor. These surface EM surveys use cutting-edge techniques that enable our team to detect conductive bodies at depths of over 1,000 meters below surface. The new EM methodology is unique to Hudbay and will lead to an advanced understanding of the mineralization at depths previously undetectable. This geophysics program resulted in the identification of a number of anomalies and prospective targets across the Snow Lake tenements, which are currently being tested. They are located near the former Reed and Anderson mines and in the vicinity of the burr and rail deposits that were acquired as part of the Rockcliff transaction. In 2025, we plan to conduct a similar-sized geophysical program to continue our mapping of the consolidated land package in the region. With the 2024 summer drill program well underway, the team currently has six drill rigs turning in Snow Lake, ramping up to eight drill rigs in August. The summer program is testing the new geophysical targets and completing follow-up drilling at potential regional satellite deposits and at the new Lalor Northwest Discovery, which I will discuss in the next slide. Moving to Slide 12. The 2024 winter drill program also included follow-up drilling at the Lalor Northwest Target. In the second quarter, we received positive assay results confirming the discovery of two mineralized zones located within 400 meters of the existing Lalor underground infrastructure. The discovery hole in 2023 intersected two mineralized zones including 4.8 meters at 2.97% copper, 2.92 grams per ton gold and 80.3 grams per ton of silver. In 2024, a follow-up hole intersected the same two mineralized zones including 9.0 meters of 2.88% copper, 6.27 grams per ton of gold, and 88.9 grams per ton of silver. These promising results justify additional follow-up drilling that is being completed as part of the Summer 2024 exploration program. We have two drill rigs turning at Lalor Northwest and assays are expected to be received by the end of the year. We will use the results to determine the potential size of Lalor Northwest and the potential for future underground exploration drift development from Lalor. Lalor Northwest has the potential to add near-term production growth at Lalor, extend mine life and create additional value from the Snow Lake operations. In Manitoba, we are also continuing to advance the access drift at the 1901 deposit to enable infill drilling aimed at converting the inferred mineral resources in the gold lenses to mineral reserves, which is shown on Slide 13. In the first quarter, we commenced the development of the smaller profile, lower cost drift from the existing Lalor ramp. The 1901 drift is proceeding on plan and is expected to reach the mineralization in early 2025. We then expect to conduct definition drilling intended to confirm the optimal mining method, evaluate the orebody geometry and continuity, and convert inferred mineral resources in the gold lenses to mineral reserves. Pending positive results from the drilling programs, the plan is to initiate a haulage drift and other related mining infrastructure in 2025 and 2026 in anticipation of full production from the 1901 deposit in 2027. Additionally, in Flin Flon, we continue to advance tailings reprocessing studies to evaluate the potential to repurpose the existing Flin Flon concentrator to reprocess tailings. The tailings reprocessing opportunity is expected to recover critical minerals and precious metals while creating environmental and social benefits for the region. During the second quarter, we received results from the initial confirmatory drill program in the section of the tailings facility that was utilized by the zinc plant. The results confirmed grades of precious metals and critical minerals previously estimated from historical zinc plant records. Our early economic study evaluating zinc plant tailings reprocessing has shown promising results that warrant further engineering work in the second half of 2024. We are also planning a similar study with respect to the mill tailings. Concluding on Slide 14, Hudbay's leading copper development and exploration pipeline and low-cost, stable operating platform in Tier 1 jurisdictions offers investors meaningful copper exposure, complementary gold exposure, and strong near-term free cash flow generation. We produced more than 150,000 tons of copper per year, which is further augmented by our complementary gold exposure that offers cash flow resiliency in volatile pricing environments. We believe that copper has the best long-term supply and demand fundamentals in the sector, as global copper mine supply will be unable to meet demands from global decarbonization initiatives and growing copper demands. Hudbay's resilient operating platform offers significant upside potential for further value creation at higher copper and gold prices. And with that, we are pleased to take your questions.

The first question comes from Orest Wowkodaw with Scotiabank. Please go ahead.

Hi, good morning. A couple of questions, if I could. Firstly, your copper production for the year is obviously tracking below the midpoint of the guidance just based on the first half of production. What kind of grade are you expecting in Peru in the second half of the year in order to make that up?

Good morning, Orest, it's Peter. Thanks very much for the question. I think as we've previously said, the production cadence is such that it will be lower in the first half, especially in Q2, given the stripping that we're doing at Pampacancha, and we're doing some continuous stripping at Pampacancha in the second quarter. So overall, we expect the contribution of Pampacancha to be roughly 1.3 to 2.3 of Constancia pit production over the course of the year. And the grades would match that. Andre, do you have any more detailed view with respect to what the average grade would be?

It varies by quarter in terms of, towards the end of Q3, we're really going to start to see it increase and then into Q4, but in that 0.4-ish to 0.557 range or something in that over the two. But increasing definitely towards Q4. What we've done is over this quarter and last is we've opened up Pampacancha to have exposure to some other benches that might have been into 2025 when we're looking at those as possibilities to bring in Q4 to really finish off the year nicely.

Sorry, just to clarify, are you saying that the Q3 average grade could be sort of similar to Q2 within, I guess, sets up a pretty monster Q4? Is that what you said?

It's a little bit higher. It's a little bit higher in Q3, closer to 0.35 to 0.4-ish in that range. But definitely Q4 is where it really comes in. So, we're in a real strip mode right now, worse than the latter part of Q3 is almost start seeing the grades coming.

Okay, perfect. And just on Maria Reyna, if I understand you got the EIS permit to do drilling, does that mean you can now begin drilling immediately, or are there other steps required before you can start drilling?

I think the EIA is certainly the first step, but typically, it would take about another 12 months after award of the EIA to be able to actually start drilling.

Thank you.

You're welcome.

The next question comes from Ralph Profiti with Eight Capital. Please go ahead.

Thanks, operator. Good morning, Peter. It sounds like the next big capital allocation decision in Manitoba is going to be the New Britannia expansion to 2,500 tons a day. Can you talk a little bit about what that looks like in terms of timing and how much of that is dependent on things like exploration success, finding that anchor deposit, perhaps bringing 1901 into it, and what's that short-term outlook on the decision-making process there, please?

Thank you, Ralph, for your question. I would not describe the New Britannia expansion as a significant capital allocation decision. We are still exploring and implementing high-return throughput enhancements that require minimal capital investment. This aligns with our ongoing efforts to improve operational excellence that we have experienced in recent years. Gradually, we will increase production, and in the past month, we surpassed 2,000 tons per day. Andre, could you elaborate on the specifics of the capital decisions? However, I don’t believe they are substantial at all.

Yes, that's correct. These are all very minor capital projects aimed at subtle improvements. For example, we've noticed some wear on our cyanide destruction tanks. Similar to our previous approach, we are processing tailings through our base plant, and while running at high rates through the mill, we experience some outages. Minor adjustments like replacing the liners on those tanks and making small pump upgrades, as well as addressing closures around thickeners where we see delays, are all subtle enhancements. On a daily basis, we are operating at quite high levels, reaching peak rates of up to 2,400 tons per day. As Peter mentioned, these improvements are primarily through process enhancement, and none of these projects exceed $10 million. Overall, these are not significant expenditures.

Okay, okay. Thanks for that. That's helpful. In British Columbia, just wondering if you guys have set targets or KPIs on where you want to be at year-end with regards to throughput and recoveries. Just kind of looking to benchmark some of the stripping work that you're doing and how the cadence looks going into 2025.

Sure. There are two parts to the question. It's a good question. Regarding the stripping, we are currently operating at a flat cost. We have finally increased our workforce, completed the purchase and leasing of equipment, and refurbished drills and shovels. As of August, we have our full team and fleet in place. Over the past few months, we have incurred some costs, although the movement has not significantly increased. Coming out of Q2, we were processing approximately 200,000 tons per day, and in August, we are ramping up to around 250,000 tons per day, with continuing increases throughout the rest of the year. Material movement is increasing, but apart from consumables like fuel and some explosives, most costs are fixed. Therefore, our unit cost per material moved will decrease going forward. There is not a significant increase in capital; it's mainly about utilizing the equipment and the investments made with the truck drivers. In terms of mill throughput, we are very proud of our team's performance. The mill availability is quite high, around 94%, which is approaching world-class standards like Constancia. The mill is operating efficiently, and we are averaging 35,000 to 40,000 tons per day, primarily influenced by the feed size that goes through a secondary crusher. By the end of the year, with ongoing projects, we expect to see some improvements such as new liners coming in November, ball sizing changes, and enhancements to a mill slicer to optimize the SAG and grinding circuit. We believe these adjustments could help us reach approximately 41,000 tons per day as we close out the year. We are also working on a series of capital projects aimed at reaching the next level. In our Management Discussion and Analysis, we mentioned plans to increase to 50,000 tons per day sooner than we initially anticipated. The teams are currently at the feasibility stage, and we plan to present these capital projects to the board for approval later this year to achieve a significant milestone at the Copper Mountain mine. Costs have been decreasing, recoveries are performing well, and we just need a slight uplift to drive profitability.

That's great. Good progress. Thanks, Andre and Peter.

The next question comes from Lawson Winder with BOA Securities. Please go ahead.

Hi. Thanks very much, Operator. Thank you for the call today, gentlemen, and for the update. Could I ask on M&A and ask you to describe how you might view your current posture on potential acquisitions? And whether Hudbay is currently actively evaluating opportunities?

Thanks, Lawson. Look, I think that Hudbay has an extremely skilled team when it comes to highly efficient operations and world-class development projects, and we feel we can create value from both operating and development stage assets. So our strategy hasn't changed and will continue to be disciplined as we evaluate assets that fit our stringent strategic and financial criteria. And as you know, copper assets are scarce, and we would only pursue opportunities that are accretive and that create value for our shareholders. But that said, I think that, again, you're aware that those assets are extremely scarce. It took us a long time to sort of land on Copper Mountain. We continue to scour the marketplace for assets, and we haven't landed on anything right now that meets our criteria, but we continue to seek those opportunities.

And is it the case that your criteria remains Western countries, and has there been any change to the criteria at this point, particularly in light of how much more substantial Hudbay is in terms of a copper producer?

Yes, we still focus on Tier 1 mining jurisdictions very much. So the Americas for the majority, but in the past, we have actually looked to Europe and other investment-grade jurisdictions.

Thanks for that. Could I also ask about the public comment period for the Aquifer Permit that concluded in Q2? Did any of the public comments change your perspective on the social license outlook for Copper World? Were there strong objections to the project, or would you say the comments were generally supportive?

In general, it's fair to say that the comments were fairly supportive. In fact, there were a massive number of comments that were received in support of the project which was of course received by the Arizona Department of Environmental Quality. As always, there will be positive and negative, but our view is that the process, we're sort of moving inexorably towards approval of that permit during the course of the remainder of the year.

Okay, great. Thank you so much for the update today.

The next question comes from Dalton Baretto with Canaccord. Please go ahead.

Thanks. Good morning, Peter and team. Maybe I'll start by staying on the Copper World permits here. Peter, with the election coming up in November, I realize these permits are state-level permits, but do you see any sort of delays to the process at all?

Not at this point, Dalton. We are very confident that we will secure the permits by the end of the year, although if the Arizona Department of Environmental Quality has questions that need to be resolved and requires additional time, we will cooperate with them. However, we have a strong commitment from the ADEQ to complete their work by the end of the year. I don't think the permitting process is heavily influenced by the current political landscape in the United States; it is primarily a state-driven process. We are actively engaged with the ADEQ, and our relationship is very constructive. Therefore, we expect the permits to be granted by the end of the year. That said, if there were a request from the states to enhance the robustness of those permits, we would collaborate with them, but there are no indications that this will be necessary. We are quite confident we will obtain them this year.

Thanks, Peter. And then as a related question, and I think I asked you this in the last call in a very different copper price environment and a copper sentiment environment, but are you still planning on waiting for the permits to execute on the, kick off the JV process, or have you loosened on that stance?

It's actually a really interesting question, Dalton. I think that we are in a much better financial condition, in the context of Eugene's 3-P plan. We have met the prerequisites for that 3-P plan from a financial perspective. We still do expect to initiate a minority JV partner process after we receive the state-level permits, and we expect that process to be robust based on the track record that we have and based on the initial indications that we have from potential partners with whom we're engaging. So, very much, there's no change in plan. We think that it's the right thing to do. And we continue to look for a long-term partner who's bullish on the copper price and looking to grow their copper exposure. All signs point towards that being very robust.

Great. Thanks, Peter. And then maybe I can ask you one sort of big picture question, if I may. You're mining Pampacancha now, you're generating free cash flow, the Peru political issues are well behind you, you've cleaned up the balance sheet. And yet on my numbers, you still trade at a fairly substantial discount to peers. And I'm just wondering if I could ask, A, why do you guys think that is? And number two, how does that play into your strategic thinking going forward?

Thanks Dalton. Look, I think that a big piece of that is investors in the market are waiting for the outcomes of the Copper World permitting process. I think that's number one. I think there's a little bit of a, let's wait and see with respect to Maria Reyna and Caballito, and we're moving towards receipt of those permits as well. But as was the case of Pampacancha, permitting takes time in Peru. And so I think those things build into some of the valuation delta. But from a financial or balance sheet perspective, from a jurisdictional risk perspective, I think all of that has gone away. Perhaps Eugene, you might comment further if you have other thoughts.

No, I think we are encouraged by the investor interest that has been in Hudbay through this, particularly through this year and our oversubscribed equity offering and valuations improved, and they see the opportunity to get exposure to our increasing cash flows and the catalysts that Peter has outlined, and we look forward to making them a lot of money.

Great. Thanks for your thoughts, guys.

Welcome.

This concludes the question-and-answer session. I would like to turn the conference back over to Candace Brule for any closing remarks.

Thank you, Operator, and thank you, everyone, for joining us today. If you have any further questions, feel free to reach out to our Investor Relations team. Thanks, and have a great day.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.